Manufacturing sector expanding at a slower pace as firms take cautionary approach

The manufacturing sector continued to grow, but at a slower pace in July, as companies adopted a more cautious approach. The BNZ-Business New Zealand Performance of Manufacturing Index dipped 5.8 points to 54.3, indicating expansion. This figure was lower than the significant 56.3 recorded in June, but economists note that such month-to-month fluctuations are typical and not necessarily alarming.

According to BNZ senior economist Doug Steel, production was the strongest sub-index at 57.3, followed by deliveries at 55.8 and new orders at 53.3. However, employment, the weakest sub-index, remained in expansion at 52.8, suggesting some job creation. Steel pointed out that despite the overall positive trend, there were some cautionary signals. Many businesses cited geopolitical tensions, fuel price volatility, higher raw material costs, inconsistent forward orders, and weaker consumer spending as concerns.

BusinessNZ head of advocacy Catherine Beard acknowledged that after June's exceptional result, it was not surprising to see the momentum ease. However, she highlighted that conditions were solid. What's more concerning, Beard noted, is the shift in sentiment, with 57 percent of comments being negative. Respondents cited the Middle East conflict, high fuel and raw material costs, and customer reluctance to spend, as well as uncertainty leading up to the election, as key factors.

Steel concluded that overall, the numbers suggested the manufacturing sector began the third quarter positively, following a more subdued second quarter due to the US-Iran war.